Closing Tax Loopholes Using Big Data Analysis

Closing Tax Loopholes Using Big Data Analysis

As tax season is currently in full swing I have began to see more and more articles on the internet about strange tax deductions that people have made in the past. Many of these deductions are legal due to loopholes that the person found that maybe the Internal Revenue Service didn’t know about. If just one person was exploiting these loopholes then it really wouldn’t make that much of a difference but when it starts getting into the thousands  or millions of people then it really starts to add up to a large amount of money. 

              

Since the US government is trying to get every dollar they can these days and many cuts are being discussed I think it is important for all possible savings to be considered. This means less people have to lose their jobs which would be much better for the economy. Since taxes are the major income source for the government, closing up loopholes could result in much higher amounts money flowing in which would reduce the amount of cuts that would have to be made.

               

The real problem with most loopholes is that they are hard to find. However, the process of finding these loopholes could be much easier using the Big Data Analysis techniques we have used so far. This blog is meant to show how with relatively simple word searches using big data analysis software the internal revenue service could find rare deductions and trace them to the loophole that allows for such a deduction. Then they could close that loophole so that it doesn’t occur again.

You might ask, “How would they use big data to find this?” So far most of the Keyword searches that we have done have been to find the words that appear the most but in this case we would want to look for the ones that appear the least. Since we are just trying to find the loophole and not the person exploiting it, we can cleanse the data to only include itemized tax deductions from the tax returns collected during tax season. This will illuminate all of the names and standard information that appears on all tax returns and just narrow it down to what you really want to see.  

This process would actually become easier each year as more loopholes are eliminated but also as technology increases. The biggest reason for this becoming easier each year is that more people are e-filing their taxes so the information will already be in an electronic format. Once it is in electronic format a program can be used to pull just the itemized deductions portion from each return and insert them into a file. Then a program such as Rapid Miner can be used to look for the words that are used the least. Many of these words won’t mean anything but certain words will be easily spotted by training internal revenue professionals. 

This is not the only place the government could use big data to help get us out of the current budget crisis but this would be a great place to start. Once the huge savings are realized just off of taxes big data analysis will be used in several other areas which could also lead to huge savings.